EDITORIAL: Come down from the clouds

President Ma Ying-jeo’s (馬英九) nomination of outgoing Google executive and technology veteran Simon Chang (張善政) as minister-without-portfolio last week raised the hope that a much-needed overhaul of the nation’s high-tech industry is near, as pressure mounts from primary global rival South Korea.

Chang’s resume makes his appointment persuasive. Chang, 57, was head of Google’s Asia-Pacific Hardware Operations, and before that he worked at the National Science Council and was a vice president at local PC firm Acer. With close links to Taiwan’s high-tech circle, Chang can argue for the government to take a more effective approach to benefit high-tech firms and make concrete suggestions to help reshape the industry.

However, Chang cannot restructure an entire industry on his own. All government agencies will have to work together to drive growth, Chang has said.

His remarks reflect the sad truth that for a long time, a critical problem has been the government’s poor efficiency and inability to formulate or carry out adequate policies, which has led to the failure to upgrade the nation’s high-tech sector. Chang said he wants to bridge the gap between the government and local technology companies.

Chang’s concern is genuine. Over a long period of time, the lack of government stimulus programs and financial incentives has meant that Taiwanese companies have been relying on cost cuts to squeeze ever slimmer profits out of the manufacturing process. Because of their small scale and their predominant focus on manufacturing rather than development, they cannot afford the massive research and development outlays of their global rivals. However, the exclusively cost-cutting approach is not enough for them to survive intensifying competition in everything from from chip manufacturing to the PC brand sector.

Taiwan’s shaky DRAM industry is a perfect example. Lacking timely government capital injections and the advanced technologies available to competitors, Taiwanese companies are scaling back production in a fight for survival. They now only play a marginal role in the world’s DRAM industry after their market share shrank to less than 7 percent at the end of last year from 10 percent at its beginning.

There are successful Taiwanese companies that still shine on the global stage. Hon Hai Technology Group and Taiwan Semiconductor Manufacturing Co are two of them. However, both companies’ chairmen — Terry Gou (郭台銘) of Hon Hai and TSMC’s Morris Chang (張忠謀) — complain that the government has given them little help in growing their companies.

Now, as minister-without-portfolio, Chang wants the government to have a greater say in the development of cloud-computing technology, to make the nation a leading production center. The government should play a central role in developing applications of cloud-computing technology in the medical and education sectors in order to encourage more firms to participate in this industry, he said.

It is good that the government wants to help, but it has to help in the right manner. This is the old fashioned and inappropriate way — identify a promising new industry with stellar growth prospects and then simply encourage firms to join the game.

The government should learn from history. The nation’s debt-ridden DRAM and LCD sectors are the unsuccessful cases. Too many companies entered these “promising” industries after being encouraged to by the government, which only led to oversupply and a price collapse.